Major Currency Pairs: What They Are and How They Work in CFD Trading

Major currency pairs are widely traded Forex pairs that include the US dollar (USD) alongside another major global currency. The seven pairs commonly described as majors are EUR/USD, USD/JPY, GBP/USD, USD/CHF, AUD/USD, USD/CAD and NZD/USD.

These pairs account for a significant share of global foreign exchange activity. The US dollar remains the dominant currency in the FX market, appearing on one side of 88% of all trades in the Bank for International Settlements (BIS) 2022 Triennial Survey. High trading activity generally gives major pairs deeper liquidity and tighter bid-ask spreads than less actively traded currency pairs.

What Are the 7 Major Currency Pairs?

Every foreign exchange trade involves exchanging one currency for another. In retail Forex, the term major currency pairs commonly refers to seven widely traded pairs that include the US dollar.

The seven major pairs are:

• EUR/USD (Euro / US Dollar) — One of the world's most actively traded currency pairs.
• USD/JPY (US Dollar / Japanese Yen) — Often influenced by monetary policy and interest-rate expectations in the US and Japan.
• GBP/USD (Pound Sterling / US Dollar) — Commonly known as “Cable” and closely watched around UK and US economic releases.
• USD/CHF (US Dollar / Swiss Franc) — Pairs the US dollar with the Swiss franc, a currency that has historically attracted demand during periods of market uncertainty.
• AUD/USD (Australian Dollar / US Dollar) — Often influenced by commodity markets, global growth expectations and economic developments in Australia and its major trading partners.
• USD/CAD (US Dollar / Canadian Dollar) — Can be influenced by energy prices because Canada is a major oil producer and exporter, although many other economic factors also affect the exchange rate.
• NZD/USD (New Zealand Dollar / US Dollar) — Often influenced by New Zealand's economic outlook, monetary policy, commodity exports and broader market sentiment.

The terminology is a market convention rather than a universal formal classification. Currency pairs that do not include the US dollar, such as EUR/GBP and GBP/JPY, are generally called cross currency pairs or crosses.

Pairs involving currencies that are less actively traded are often described as exotic pairs. However, classifications can vary between brokers and other market participants, so not every non-major pair is necessarily considered exotic.

How Do Base and Quote Currencies Work?

Every currency pair contains a base currency and a quote currency.

The first currency is the base currency, while the second is the quote currency.

For example, if EUR/USD is quoted at 1.0850:

EUR/USD = 1.0850

This means €1 is worth US$1.0850.

In this example:

• EUR is the base currency.
• USD is the quote currency.
• A rise in EUR/USD means the euro has strengthened relative to the US dollar, or the dollar has weakened relative to the euro, or a combination of both.
• A fall means the opposite relationship has occurred.

Price movements in Forex are commonly measured in pips. For many currency pairs, one pip represents a movement of 0.0001. For pairs involving the Japanese yen, one pip is usually 0.01.

For example, a move in EUR/USD from 1.0850 to 1.0851 is one pip.

Why Does Liquidity Matter When Trading Forex CFDs?

Liquidity describes how easily a market can absorb buying and selling without causing a large change in price.

Major currency pairs attract activity from banks, financial institutions, companies, investment firms and retail traders. Their high trading volume generally supports deeper liquidity than less actively traded currency pairs.

Greater liquidity can contribute to:

• tighter bid-ask spreads;
• more available market depth; and
• lower potential price impact when orders are executed.

However, high liquidity does not guarantee a particular execution price. Spreads can widen and slippage can increase around major economic announcements or during periods of reduced market activity.

Trading activity is often particularly high when the London and New York sessions overlap. With both financial centres active at the same time, trading volume and liquidity can increase, while spreads on heavily traded pairs may become tighter under normal market conditions.

This does not mean the overlap is automatically the best time to trade. Higher activity can also coincide with greater price volatility, particularly when important economic data or central bank announcements are released.

What Does It Cost to Trade Major Currency Pairs?

A narrow spread does not necessarily mean that the overall cost of a Forex CFD trade is low.

Depending on the broker, account type and how long the position remains open, trading costs and execution effects may include:

1. Spread: The difference between the bid price and ask price. It represents an immediate trading cost when opening a position.
2. Commission: Some account types charge a separate commission in addition to the spread.
3. Overnight funding: A position held beyond the broker's daily cut-off may receive a funding debit or credit. For Forex CFDs, the calculation can be based on the market's tom-next rate plus the broker's applicable charge or adjustment.
4. Slippage: The difference between the requested or expected execution price and the price at which the order is actually filled. Slippage is not a fixed broker fee, but it can increase or reduce the effective cost of execution.

Because pricing models differ, there is no single formula that accurately describes the total cost of every Forex CFD trade. Traders should check the broker's contract specifications and fee schedule before opening a position.

Example of a Spread Cost

For EUR/USD, one pip on a standard 100,000-euro lot is generally worth US$10 when the account or calculation is denominated in US dollars.

If the spread is 0.8 pip:

0.8 × $10 = $8

The spread cost is therefore approximately $8 for that trade, assuming the spread remains unchanged and ignoring commission, slippage and currency-conversion effects.

If ten equivalent trades are completed, the combined spread cost would be approximately:

10 × $8 = $80

Actual trading costs can differ because spreads are not always fixed and brokers use different pricing models.

How Do Leverage and Margin Work?

Forex CFDs allow traders to gain exposure to a larger market position by providing only part of its value as margin.

In the UK, rules from the Financial Conduct Authority (FCA) require retail clients to provide initial margin of at least 3.33% of the exposure for CFDs based on major foreign exchange pairs. This corresponds to maximum leverage of 30:1.

For example, if a CFD provides exactly US$100,000 of market exposure:

$100,000 × 3.33% ≈ $3,333

The exact margin required can depend on the position's exposure value, exchange rates, account currency and the provider's margin rules.

Why Leverage Increases Risk

Leverage increases both potential gains and potential losses because profit and loss are calculated using the full market exposure rather than only the margin posted to open the trade.

A relatively small adverse price movement can therefore cause a substantial loss compared with the initial margin.

For UK retail CFD accounts, FCA rules also require providers to apply a margin close-out rule when account funds fall to 50% of the margin required to maintain open CFD positions. Retail clients must also receive negative balance protection, which limits their aggregate liability for CFD trading to the funds in their CFD account.

These protections reduce certain risks, but they do not prevent traders from losing their account balance.

Major vs Minor and Exotic Currency Pairs

Major currency pairs generally offer deeper liquidity than less actively traded pairs, but liquidity is only one factor to consider.

Spreads, volatility and execution conditions vary by individual currency pair, broker and market environment. A pair should not be considered low-risk simply because it is classified as a major.

Are Major Currency Pairs Suitable for CFD Trading?

Major currency pairs are widely used for Forex CFD trading because they tend to offer deep liquidity and relatively tight spreads. However, these characteristics do not remove the risks associated with leverage or adverse currency movements.

Before you open a position, you'll want to understand:

• how the currency pair is quoted;
• the value of a pip at their chosen position size;
• the margin required;
• the broker's spread and commission structure;
• potential overnight funding adjustments; and
• how much of their account could be lost if the market moves against the position.

Risk management cannot guarantee that a trade will be profitable or prevent every loss.

Conclusion

Major currency pairs sit at the centre of the global foreign exchange market. Their high trading activity generally provides strong liquidity and relatively tight spreads, which can make them less costly to trade than less liquid currency pairs under normal market conditions.

However, low spreads do not mean low risk. When major currency pairs are traded through CFDs, leverage increases exposure and can magnify losses as well as gains. Trading costs can also extend beyond the spread to include commissions, overnight funding and the effects of slippage.

Understanding position size, margin requirements and the broker's full charging structure is therefore important before trading leveraged Forex products.

For a broader explanation of how derivative positions work, see our guide to CFD trading.

Risk warning: This article is for educational purposes only and does not constitute financial advice. CFDs are complex, leveraged products and involve a high risk of losing money. UK-regulated CFD providers must display a firm-specific risk warning showing the percentage of their retail client accounts that lose money. Check the provider's current risk disclosure before trading.